Provide COLAs based on lesser of increase in wages or prices, with a "catch-up" provision.

-1

-60

.06

D-12

Provide COLAs based on lesser of increase in wages or prices, with no "catch-up" provision.

-4

-66

-.43

* Various alternatives are considered (see subsequent pages for details).

D. COST-OF-LIVING ADJUSTMENTS FOR BENEFITS IN PAYMENT STATUS

Present law. Benefits are increased each year when the annual increase in the Consumer Price Index (CPI) is 3% or more. The amount of the benefit increase is equal to the increase in the CPI from the first quarter of one year to the first quarter of the next year. The benefit increase is effective for June, and is first reflected in the check sent in early July.

Options.

D-1 Delay the cost-of-living adjustment by one month per year for 3 years, effective in 1983, so that, in 1985 and after, the benefit increase would be effective at the beginning of the fiscal year.

D-4 Provide a guaranteed benefit increase of 4% for 1983 and 1984, regardless of the change in the CPI.* In 1985 and thereafter, the annual benefit increase would equal the annual percentage increase in wages, minus 15 percentage points.

Cost (in billions of dollars)

Estimate

1983

1984

1985

1986

1987

1988

1989

1983-89

II-B

-2.9

-9.3

-14.0

-16.2

-18.1

-19.5

-20.4

-100.4

III

-4.0

-13.4

-22.1

-27.8

-32.8

-37.7

-42.3

-180.1

Long-Term Cost: -.16% of taxable payroll

D-5 Same as Option D-4, except that the benefit increase in 1983-84 would not be less than that resulting from an increase of $14 in the PIA.**

Cost (in billions of dollars)

Estimate

1983

1984

1985

1986

1987

1988

1989

1983-89

II-B

-2.7

-8.8

-13.3

-15.5

-17.4

-18.8

-19.7

-96.2

III

-3.8

-12.9

-21.4

-27.1

-32.1

-37.0

-41.5

-175.8

Long-Term cost: -.15% of taxable payroll

* A parallel change could be made in the indexing of the bend points in the PIA benefit formula (which is based on wage changes). This would be done so as to prevent "notch" situations from occurring as between persons first becoming eligible in the year of the revised benefit increase and those first becoming eligible in the next year. Such a change would have relatively little cost effect in the short run, but would have a significant effect over the long run.

** The $14 increase would not be applicable for very low PIAs, which instead would have a 10% increase be applicable.

D-6 Provide benefit increases equal to 75% of what the benefit increases would be under present law (i.e., 75% of the CPI increase), effective in 1983.*

Based on X Being .3% in 1983-85, 1% in 1986-88 and 1 1/2% Thereafter***

Estimate

1983

1984

1985

1986

1987

1988

1989

1983-89

II-B

-.5

-.9

-.5

-.4

-.5

-.1

+.1

-2.8

III

-1.9

-6.4

-10.6

-13.9

-16.8

-19.5

-22.6

-91.7

Long-Term Cost: Negligible

Cost (in billions of dollars)

Based on X Being .3% in 1983-85, 1% in 1986-88 and 1 1/2% in 1989-2019, and 2% Thereafter

Estimate

1983

1984

1985

1986

1987

1988

1989

1983-89

II-B

-.5

-.9

-.5

-.4

-.5

-.1

+.1

-2.8

III

-1.9

-6.4

-10.6

-13.9

-16.8

-19.5

-22.6

-91.7

Long-Term Cost: -.38%,of taxable payroll

*** These values of "X" approximate the real-wage differentials in the Alternative II-B estimate in the 1982 Trustees Report.

D-11 Provide benefit increases based on the lesser of the annual percentage increase in wages or the annual percentage increase in prices, beginning in 1983. Include a "catch-up" provision, so that in times of a healthy economy (when wages rise faster than prices), benefits will be increased by wages if they had previously been increased by less than the full CPI -- until any deficit relative to CPI rises is made up (so as to bring benefit levels up to the point where they are actually keeping up with inflation).****

Cost (in billions of dollars)

Estimate

1983

1984

1985

1986

1987

1988

1989

1983-89

II-B

-.2

-.3

-.0

-.0

-.0

-.0

-.0

-.6

III

-1.7

-5.7

-9.2

-10.9

-11.2

-11.0

-10.2

-59.9

Long-Term Cost: -.06% of taxable payroll

D-12 Same as Option D-11, except that there would be no "catch-up" provision.****

Cost (in billions of dollars)

Estimate

1983

1984

1985

1986

1987

1988

1989

1983-89

II-B

-.2

-.5

-.6

-.6

-.6

-.6

-.7

-3.8

III

-1.7

-5.7

-9.2

-11.0

-11.8

-12.6

-13.7

-65.7

Long-Term Cost: -.43% of taxable payroll

**** To further stabilize the financing of the program, this proposal could be combined with an automatic-adjustment mechanism for the payroll tax rate and/or payments (or loans) from the General Fund of the Treasury based on either the combined OASDI Trust Fund or the level of unemployment.

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